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Should Landlords Incorporate?

By Jeffrey Yano, Esq. on January 30, 2018 1:20 PM

To incorporate or not to incorporate? Small business owners in every industry ask themselves this question. Forming a corporation or an LLC involves paperwork and money, while running things as a sole proprietor can expose you to some potentially tricky liability and tax questions. When it comes to landlords, it really comes down to whether the benefits of incorporation are worth the cost.

Benefits of Incorporating

Maybe you've heard of the term "corporate person"? A corporation is, legally speaking, a separate entity from its owner. And many of the benefits of incorporation flow from a corporation's sense of personhood.

Corporations have limited liability for their torts, meaning lawsuits are directed at the company rather than an individual owner. When someone slips and falls and suffers injury, it's the premises' owner that gets sued. If you're incorporated, the corporation gets sued.

Tax benefits exist too. Your personal income is taxed at individual rates, but corporations are taxed at corporate rates. And there are differences in the form of taxable income and deductions and credits available from federal, state, and local governments.

Whether It's Worth It

Here's a good question to ask. Are you looking to rent something out or run a business? The answer should be a good indicator of whether landlord incorporation is right for you.

Forming an LLC or a corporation is more common for professional realtors and developers. Construction and repair costs, maintenance costs, employee management, and potentially greater liability concerns may counsel for incorporation. Incorporation involves paying for lawyers to form a legal entity and, afterward, observing corporate formalities and running yourself as a business.

Now if that scares the bejesus out of you then incorporation probably isn't worth it. Empty nesters and second-home owners looking for some extra income likely aren't up to that kind of time and energy. On the other hand, corporations have perpetual life, meaning they continue on, and on and on. That might be attractive to some homeowners.

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